central banker vigilantes

BACK WHEN I FEARED THE BOND-MARKET VIGILANTES: MAUNDERING OLD-TIMER REMINISCENCE WEBLOGGING by DeLong

The right policy, we thought--and I think the evidence is pretty clear that we were 100% right--was to aggressively move to reduce the budget deficit in 1993 even thought the recovery was weak in order to eliminate any market expectations that high deficits would lead to higher inflation, and--more importantly--to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far [sic?] to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral. 

That was not an attack but a horizon-sighting of bond-market vigilantes--or perhaps only the market thinking the Federal Reserve thought it was about to get a horizon-sighting of bond market vigilantes.

This is the famous episode where Clinton throws a tantrum over being pressured by Rubin and Greenspan to drop his campaign promise of enacting a middle class tax cut-spending bill  and where Carville says he now wishes to come back as the bond market. Here is where the social democratic, Eisenhower-Republican elite political class bend the knee to the giant vampire squid financial sector. Clinton should have pulled a Shinzo Abe and replaced Greenspan.

DeLong  writes "I think the evidence is pretty clear that we were 100% right." What's the evidence? A recent meme and topic of discussion has been the declining labor share of productivity gains. Ever since the 1980s we've a had a shampoo economy: bubble, bust, rinse, repeat. The 1990s look better in light of the 2000s, but they ended with a stock-tech bubble which morphed into a disastrous housing bubble. 

Every recovery from a recent recession have been a slow "jobless recovery."

...and--more importantly--to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far [sic?] to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral. 

George W. Bush increased deficits and failed to renew an inflationary spiral.

From this past year Part One

"They will bend the knee or be destroyed."

Excerpt from "Winds of Winter" (Jan. 2, 2012)

...Theon's laugh was half a titter, half a whimper.  "Lord Ramsay is the one Your Grace should fear." 

Stannis bristled at that.  "I defeated your uncle Victarion and his Iron Fleet off Fair Isle, the first time your father crowned himself.  I held Storm's End against the power of the Reach for a year, and took Dragonstone from the Targaryens.  I smashed Mance Rayder at the Wall, though he had twenty times my numbers.  Tell me, turncloak, what battles has the Bastard of Bolton ever won that I should fear him?"

Inflation target tyranny by John Quiggen (Jan. 27, 2012)

Last but not least, a nominal GDP target would create room for fiscal policy as well as monetary policy. What is needed now is the abandonment of counterproductive austerity policies as a response to the slump in Europe and the US. Austerity should be replaced by a combination of short-term fiscal stimulus and long-run measures aimed at a sustainable budget balance. That can only be achieved if central banks co-operate with pro-growth fiscal policy, instead of seeking to counteract it in the name of inflation targets.

Christina Romer on Learning from the Great Depression (Feb. 18, 2012)

 I think that what the Fed needs instead is a regime shift. A number of economists have suggested that the Fed adopt a new framework for monetary policy, like targeting a path for nominal GDP. If the Fed adopted such a nominal GDP target, they would start in some normal year before the crisis and say nominal GDP should have grown at a steady rate since then. Compared with that baseline, nominal GDP is dramatically lower today. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive policy – perhaps more quantitative easing and deliberate actions to talk down the dollar. Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses.

Game of Thrones: Season 2 teaser (Feb. 27, 2012)

Season 2 Trailer: Power and Grace

Valar Morghulis (March 3, 2012)

Kenyan Socialism has two mottos. Eppur Si Muove and Valar Morghulis (Old Valyrian for: "all men must die").

"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."

"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"

Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."

"Your father," said Prince Oberyn, "may not live forever."

Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."

"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."

        George R.R. Martin -- A Storm of Swords

THE FIGHT OVER THE CATO INSTITUTE: JUDEAN PEOPLE'S LIBERATION FRONT/PEOPLE'S LIBERATION FRONT OF JUDEA BLOGGING by DeLong (March 8, 2012)

Charles Evans's Odyssean Strategy (March 26, 2012)

Charles Evans and friends on the Odyssean strategy

Circumstances will tempt the FOMC to renege on these promises precisely because the policy rule describes its preferred behavior. Hence this kind of forward guidance resembles Odysseus commanding his sailors to tie him to the ship's mast so that he can enjoy the Sirens' music.

And a little meta-humor in the first footnote! Very David Foster Wallacian. (below)

1 Since one of the authors regularly attends meetings of the FOMC, perhaps it is tempting to just ask him this question directly. The vantage point of this paper is a research inquiry: how can these questions be answered from the standpoint of economic researchers with only publicly-available information?

A Broken Heart Is Blind

Shrink this e-dollar by Ryan Avent

Quoting Miles Kimball:

There are only two important things that economists talk about that are worse at zero inflation than at 2% inflation. One that has attracted some interest is that a little inflation makes it easier to cut the real buying power of workers who are performing badly. But by far the biggest reason major central banks set their long-run inflation targets at 2% is so that they have room to push interest rates at least 2% below the level of inflation. With electronic dollars or euros or yen as the units of account, there is no limit to how low short-term interest rates can go regardless of how low inflation is. So inflation at zero would be no barrier at all to effective monetary policy. It might be that we would still choose inflation a bit above zero to help make it easier to cut the real (inflation-adjusted) wage of poor performers at work, but I doubt it.

Emphasis added. And also:  DNWR (downward nominal wage rigidity).

In Japan, a Test of Inflation Targets by Floyd Norris

“Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation.”

-- Ben Bernanke 2002 

...
It is, however, very doable, as Switzerland has shown. When the euro zone debt crisis was at its worst, Switzerland became a safe haven for European investors worried that the euro might blow up. That drove up the value of the Swiss franc versus the euro and damaged 

Switzerland’s ability to compete. The Swiss government responded by announcing that the euro would not be allowed to fall below 1.2 Swiss francs. If necessary, the government would simply sell francs to meet any demand. 

That has been necessary, and the Swiss have accumulated a huge portfolio of foreign currency. So, too, could the Japanese if they chose to announce that the dollar would henceforth be worth at least 100 yen, a level not seen since 2009. 

Doing so would instantly restore at least some competitiveness to Japanese industry, which has experienced something that would have seemed impossible only a few years ago: Japan has a trade deficit.

Bank of Japan Will Talk About Inflation Target

Marijuana, Not Yet Legal for Californians, Might as Well Be

Thrill-Seeking Beats Take the Scenic Route by Stephen Holden

The sex and drugs Kerouac described with a sense of thrilled discovery in the novel come across in the movie as the same old sex and drugs that lost their mystery in the mass hippie freakout of the 1960s. I would much rather imagine it than see all the banal mechanics. The movie doesn’t bother to evoke the conflict between the lives of these bohemian wild men and the square America of the 1940s and ’50s.

Has Kristen Stewart, Amy Adams and Kirsten Dunst. The square America of the 1940s and 50s also had the PTS war veterans and alcoholics like Joaquin Phoenix's character in "The Master." No doubt it was a much more authoritarian place, where father was always right and mom's place was in the kitchen. Jews and Blacks weren't allowed at the golf club. Gays were seen as deviant. A milieu where Robert Bork would have felt more comfortable.

Maybe Robert Waldmann Should Calm Down by David Glaesner

New label: "The Bet" regarding the Kelton-Woodford-DeLong wager.

The Real World Is Nominal by Yglesias

Debt Ceiling Strategies by Jared Bernstein

Bernanke - the Rebel with a Cause by Sebastian Mallaby

This revolution recalls the 1990s, when the earlier fixation on the money supply was replaced (tacitly in the US, explicitly in other advanced economies) by a target for inflation. Then and now, the focus on a proxy for inflationary pressure – the quantity of money circulating in the economy, or the quantity of bonds on the central bank's balance sheet – gives way to a focus on the outcome that policy makers actually care about, which is non-inflationary growth. 

This switch is commonsensical. Why target a proxy when you can target the real thing? But its true genius is that it builds an automatic stabiliser into the economy. If the Fed specifies how many bonds it will buy monthly, a sudden slowdown will not change what people expect from monetary policy; investors and consumers will react to slower growth by cutting spending, creating a snowball effect. But if the Fed pledges to do whatever it takes to keep the economy advancing, a slowdown will cause people to expect offsetting Fed action. Interest rates will fall in anticipation of easing. With luck, the snowball melts. 

But that is just half of Mr Bernanke's recent shift. In moving the focus from the size of the Fed's balance sheet to its objectives for the economy, he has explained that these objectives include lower unemployment even if that means temporarily higher inflation. This is genuinely radical: for more than three decades, the Fed's leaders have avoided any such statement. Over the long term, central banks alone determine the level of inflation, whereas long-run employment is determined by the flexibility of the labour market and other structural factors. Central bankers have seen no advantage in claiming responsibility for something they could affect only partially, especially since they needed to build credibility as foes of inflation. 

In his academic career, Mr Bernanke contributed to the consensus in favour of targeting inflation. He always said that the target should be pursued flexibly, meaning that temporary deviations might be acceptable. Yet now he has seized that footnote and made it the headline. In declaring himself open to a temporary price spike, he is betting that long-term inflation expectations are well anchored, so that wage claims remain moderate and no inflationary spiral sets in. Janet Yellen, the Fed's vice-chair, has explored how much looser Fed policy should be under these assumptions. The answer is: a lot. 

There are risks here, clearly. The Fed is gambling on expectations about prices, which may prove fickle. It is hoping that massively stimulatory policies in the short run will not be mistaken for a loss of inflation-fighting resolve over the long run. But the Fed confronts an economy in which 5m Americans have been jobless for six months or more. The risks of inaction outweigh the risks of action. Mr Bernanke has rebelled against a monetary consensus to which he himself contributed. But he is a rebel with a cause.

Fundamentals and Mechanics

Please Internet-Mine Shaft remember this one:

COFFEE WITH STEPHANIE KELTON by DeLong

Were there bets on the Stimulus/ARRA? Don't make the mistake Romer-Bernstein made. What does Mark Zandi say?

The Fed's New Target Looks A Lot Like Its Old Target by Yglesias

That Terrible Trillion by Krugman

Column: Why not drop money out of a helicopter? by Duncan Black

When it Comes to the Fed and Jobs, Robert Samuelson Is Worried About Inflation and Martians by Dean Baker

LDP Wins Landslide in Japan by Yglesias

Can Shinzo Abe Save Japan? by Yglesias (Nov. 30, 2012)

Robin Harding in the "Financial Times" "Central Bankers give voice to a Revolution."

Search for the title with Google and you can bypass the paywall.

(via DeLong)

The chairman of the US Federal Reserve had reason for cheer and for a little pride: his committee had just said it would keep interest rates close to zero until the US unemployment rate falls below 6.5 per cent (it is 7.7 per cent today). For a central bank, let alone the Fed, to tie rates to the economy in this way was without precedent. 

The move speaks of a quiet revolution that is sweeping over central banks. A day earlier, Mark Carney, currently governor of the Bank of Canada, soon-to-be governor of the Bank of England, became the most senior central banker to praise an even more radical policy: targeting the level of nominal gross domestic product. Instead of having apoplexy, Britain’s chancellor said he wanted a debate. 

Like most revolutions, it seems to come from nowhere but has deep roots. Like most revolutions, it holds the promise of great good but has the potential for harm. It is crucial that politicians and the public understand what this revolution in central bank thinking is and is not about. 

“A revolution is impossible without a revolutionary situation,” said Vladimir Lenin, something of an authority in these matters. (A view from Lenin on recent monetary innovations would be interesting. “The best way to destroy the capitalist system is to debauch the currency” is another of his dainty little remarks.) 

The past five years have led central banks to a revolutionary situation. When the crisis hit, they played their best moves, but to modest effect. Quantitative easing – the ugly term for buying long-term assets in order to drive down long-term interest rates – looks radical thanks to the many-zeroed numbers involved. In reality it is just another way to cut interest rates. 

Monetary policy, and every other kind of policy, failed to engineer a strong recovery in advanced economies. Dissatisfaction with that outcome has led central bankers, spurred on by a healthy dose of external criticism, towards ideas that have been percolating in academia since Japan’s bubble burst in 1990. 

Japan’s long slump drew attention to the vexing problem of what to do if you cut interest rates to zero and the economy remains in the doldrums. Mr Bernanke was vocal in that debate, along with economists such as Paul Krugman, Lars Svensson and Michael Woodford. 

One option is quantitative easing. But there is another option: tell people that you will keep interest rates low in the future. If they believe you then it makes sense for them to borrow now. If rates are to stay low even after the economy recovers then why would they not? 

Central banks are now pursuing that basic insight. The Fed’s new 6.5 per cent unemployment condition is a way to tell everybody that rates will stay low until the economy gets better. The nominal GDP target is a more drastic version of the same thing. In essence it combines growth and inflation into one number. Targeting this not only puts more weight on growth, it means promising to make up for low inflation now with more in the future – another way of saying the central bank will keep interest rates low.

The Man Who Occupied the Fed: How Charles Evans Saved the Recovery by Matt O'Brien

Inaction is the Greatest Risk (Wonkish) by Krugman

Ben Bernanke has not yet begun to fight by Neil Irwin

Monetary Policy Innovations by Simon Wren-Lewis

A Fed Focused on the Value of Clarity by Binyamin Appelbaum

The Federal Reserve’s decision on Wednesday to announce specific economic objectives for its policies would have stunned and dismayed earlier generations of central bankers, who regarded secrecy as a virtue and obfuscation as a prized technique for manipulating financial markets. 

“Since I’ve become a central banker, I’ve learned to mumble with great coherence,” Alan Greenspan, a former Fed chairman, told reporters in 1987. “If I seem unduly clear to you, you must have misunderstood what I said.” 

But a greater appreciation for the virtues of transparency has been one of the most important shifts in central banking in recent decades. It is a response to public demands for increased accountability and an embrace of economic research on monetary policy that finds speaking clearly is more effective than mumbling. The Fed’s vice chairwoman, Janet Yellen, last month described the result as a “revolution.” 

... 

But the change could have more important consequences in the future. Until now, when economic conditions changed, markets were left to wonder whether Fed policy would change, too. Now, if the pace of growth increases and unemployment falls more quickly, the Fed has already said that it will move to raise interest rates sooner. If the recovery once again falters and unemployment rises, the Fed has already said that it will continue to suppress rates.

Better yet, investors can respond immediately, an effect that Mr. Bernanke described on Wednesday as a kind of “automatic stabilizer” for the economy.

“If the outlook worsens and that leads markets to think that the increase in rates is further out in the future, that will tend to lower long-term rates and that will be supportive of the economy,” he said. “It kind of offsets adverse shocks.”

Fed Ties Rates to Joblessness, With Target of 6.5% by Binyamin Appelbaum

The forecasts published Wednesday show that Fed officials expect the economy to expand 2.3 percent to 3 percent in 2013, slightly below the September forecast of 2.5 percent to 3 percent. Fed officials have repeatedly overestimated the health of the economy and the pace of the recovery, and the latest changes, while relatively small, continue that pattern.

12/12/12 Paradigm Shift

Bernanke's Non-Stupidity Pact by Krugman

Lost Decade Watch by Krugman

THE FEDERAL RESERVE'S SHIFT FROM A TIME- TO A STATE-BASED POLICY RULE: WILL IT END OUR "LOST DECADE"? by DeLong

A Fed Bank President's Idea Comes to Life by Michael S. Derby

Mark Carney - the current Governor of the Bank of Canada and new Governor of the Bank of England - is advocating NGDP level targeting.

This guy is really funny. Showtime has been running one of his standup routines from this year.

"Stanhope appeared on the FX television show Louie as Eddie, a fictional comedian that Louis C.K. knew 20 years earlier when they first started performing, in the season 2 episode titled "Eddie". It first aired on August 11, 2011."

"In 2003 and 2004, Stanhope co-hosted the fifth and sixth seasons of The Man Show withJoe Rogan. He hosted his own radio show on SIRIUS Satellite Radio in 2005.^[2] That year, Stanhope hosted Girls Gone Wild: America Uncovered. When asked what it was like working with Girls Gone Wild creator Joe Francis, Stanhope admitted "He's pure, unadulterated evil,"^[3] and "The most awful human being I've ever met in all of my time in the entertainment business." ^[4]

"In cooperation with the mayor of Reykjavik, comedian Jón Gnarr, Stanhope has scheduled a performance in Iceland's only maximum security prison, Litla-Hraun, for September 25th 2011. Fans who want to watch the show would have to commit a crime; for them he invented The Stanhope Defense."

"In August 2008, Stanhope endorsed Democratic presidential candidate Barack Obama, citing his disappointment with the libertarian candidates and a desire to have "a strong, handsome black man in the White House", as well as referring to himself as "the head of the one-man Libertarians for Obama group.""

Stanhope has the ultimate bullshit detector gene. He HAS to see how full of shit many Libertarians are on an array of subjects.

In the recent "Vanity Fair" Louis C.K. says he admires Obama. For those with a dark sense of humor, America with a black president is kind of funny. Obama's re-election must be driving the racists (both overt and closeted varieties) batshit crazy. See the Tea Party.

Dave Attell is darkly funny too.

Prolier-than-thou types are commenting at Yglesias's blog that monetary policy doesn't work. They've been saying this for years.

To me this is analogous conservatives' argument that the ARRA/stimulus didn't work. There have been studies that showed it worked. Just as the Fed assets that QE has worked. The onus is on critics to show that it didn't work.

Michael Woodford on the new Fed policy

FOMC Adopts Game-Changing Conditional Inflation Targeting Rule by Yglesias

More Bond Buying and Thresholds by Tim Duy

THE FEDERAL RESERVE: THREE YEARS LATE--BUT THEY DID IT!! by DeLong

Clearer Policy by Ryan Avent

Fed shifts approach in how it gauges U.S. economy by Thoma

Irwin: Five Things to Watch for on Fed Day by Bill McBride

3. "What’s the threshold?". This probably will not happen at this meeting (setting thresholds for raising the Fed Funds rate based on the unemployment rate, inflation, and possibly other economic indicators). As Irwin notes, if they do announce thresholds it "would be a surprise and would be the big headline out of the meeting." 

4. "What kind of year is 2013 going to be?" The projections will be released at 2:00 PM ET. Of course the projections depend on the "fiscal cliff" negotiations. 

5. "What’s our potential?" This is the Fed's longer term projections for GDP growth, the unemployment rate, and inflation, and these will be included in the projections. 

Inside the Risky Bets of Central Banks By JON HILSENRATH and BRIAN BLACKSTONE

Over Sunday dinners in Basel, which often stretch to three hours, they now talk of pressing, real-world problems with authority. The meals are part of two-day meetings held six times a year at the BIS. Dinner guests include leaders of the Fed, ECB, Bank of England and Bank of Japan, as well as central bankers from India, China, Mexico, Brazil and a few other countries. 

...

"It is a way in which people can talk completely privately," Mr. King said in an interview. "It is a big advantage if you have some feel for how central banks think about questions, what they're likely to do in the future if certain events were to occur." 

Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed. 

...

In November 2010, for example, the Fed launched a $600 billion bond-buying program known as quantitative easing. A few days later, New York Fed President William Dudley and Fed vice chairwoman Janet Yellen attended a weekend meeting here and were surprised by the furor the Fed's stimulus program had stirred among developing countries, according to people familiar with the talks. Mr. Dudley and Ms. Yellen spent much of the meeting explaining the Fed's actions, as other central bankers raised worries the program would cause inflation or spark an unwanted flood of capital into their markets. 

"Every time there is quantitative easing by the Fed, that gets discussed," said Mr. Subbarao. "We all have to reckon with the spillover impact of our policies on other countries." Basel, he said, is the place to air such concerns. 

The role of the Bank for International Settlements has broadened since it was formed in 1930 to handle reparation payments imposed on Germany after World War I. In the 1970s, it became the center of discussions on bank capital rules. In the 1990s, it became the meeting place for central bankers to talk about the global economy. 

The central bankers typically stop short of formally coordinating their moves. Mr. Bernanke, Mr. Draghi and Bank of Japan head Masaaki Shirakawa are more focused on domestic challenges. Mr. Shirakawa has often warned others in Basel about the effectiveness of easy money policies, according to people familiar with his statements. That hesitance has made the BOJ an issue in Sunday's Japan elections. Shinzo Abe, the front-runner to become prime minister, has promised to rein in the BOJ's independence and demand more aggressive efforts to end consumer price deflation.

My knee-jerk reaction is that "developing countries" are usually ruled by a tiny elite who like tight money and slack labor markets. Have to keep the masses in line. It also might be that they don't want U.S. exports to become cheaper and more competitive.

Workers Are Losing Out Globally by Yglesias

The bulk of the paper is dedicated to developing a technical model in which those factors can be linked and explained as a function of the declining cost of investment goods. That certainly could be right. 

In terms of discussions on the Web that militates in favor of something like the technology explanation and against something like the "robber baron" hypothesis since technology is more something that's the same everywhere. I think my conjecture about the impact of asymetrical macroeconomic stabilization holds up here in the sense that the "Great Moderation" move to strict inflation targeting regimes was more-or-less global, but you'd want to check on that. I'm less confident in that account than I was before seeing this, and more inclined to buy technology-based theories.

I don't know what to make of this.

Commenter Sadowski writes: "The technological story has been pushed aggresively by organizations like the BIS that are perpetually in favor of tight money and want to let policymakers off the hook."

The BIS is pretty bad.

Again:

The Cult of "Price Stability" Is Killing American Workers by Yglesias

Sticky (economics)

What has surprised Krugman and Jane Yellin lately is the extent of downward nominal wage rigidity.

Real rigidity

Krugman:

Why Are Wages Still Rising? (Wonkish)  (7.9.11)

Mysteries Of Deflation (Wonkish) (7.26.10)

Internal Devaluation, Inflation, and the Euro (Wonkish) (7.29.12)

Sticky Wages and the Macro Story  (7.22.12)

Nominally Legal  (7.12.12)

Pointless Pain in Spain (7.11.12)

Revenge of the Optimum Currency Area  (6.24.12)

Still more, searching NYTimes for downward nominal wage rigidity.

New Lizzy Caplan show next year.

via Dan Davies:

useful stylebook for "Bayesian" fanboys:

http://normaldeviate.wordpress.com/2012/11/17/what-is-bayesianfrequentist-inference/ 

In "Lincoln," David Costabile played James Ashley. I identified with the character's politics: hardcore abolitionist but not totally unrealistic. Costabile was also in "The Wire," "Flight of the Conchords," "Breaking Bad" and played a baddie on "Suits" a show I haven't watched.

Postive Outlook

Goldman's Top Economist Explains The World's Most Important Chart, And His Big Call For The US Economy by Joe Weisenthal

(via DeLong)

So if the Fed gets better at policy like adopting an Evans Rule and then later NGDP level targetting we could get better demand management. The private sector will deleverage and housing construction should spur more employment and demand next year. Late 2013 could be better than the tepid growth we've had since the collapse of the housing bubble.

The open question is whether we get another bubble having forgotten the most recent one.

The Cult of "Price Stability" Is Killing American Workers by Yglesias

My first introduction to the mysteries of monetary policy came when I was maybe 15 or 16 in the mid-to-late nineties and I was scanning the newspaper over breakfast. I saw a story about a strong Employment Situation Report from the BLS and how it sent the stock market falling in response because markets were anticipating a rise in interest rates. Why, I asked my dad, would an increase in employment be bad? He explained that when too few people were unemployed, the Federal Reserve tended to get worried because with so few unemployed people around workers would start agitating for higher pay. And higher pay leads to inflation. So it's important for the Fed to respond to low unemployment with high interest rates to push unemployment higher and prevent wage gains. This sometimes has the incidental impact of causing stock prices to fall.

That sounded insane to me, and my dad agreed that it was insane and explained that executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

...

Now don't get me wrong. The moral of the story isn't that inflation per se is a good thing. But if you watch Kevin Durant play a whole season of basketball and his free throws never miss to the right, that's not a sign of shooting skill it's a sign of shooting error. Some misses are inevitable, but you want the misses to be roughly symmetrical because you're aiming for the hoop. If all your free throw misses are misses to the left, something's going wrong.

The Food is Poison and the Portions are Too Small II: Krugman and Productivity Growth by Dean Baker

Michigan Goes Right-to-Work by Yglesias

The Republican party is in shambles and cocooning hard after their election losses. Obama was reaffirmed and Elizabeth Warren replaced Scott Brown. Republicans are facing the headwinds of fundamental forces like demographics and mechanics with nothing but rich cranks and resentful old-timers having their backs.

Maybe the unions need a wider supportive movement to survive and that simply is no longer there.

Krugman is pessismistic.

Yglesias responds.

Bloggy, too-much-info post.

Okay, something I'm putting in my book queue is Gone Girl by Gillian Flynn, a real-life female Richard Castle.

I read the latest Entertainment Weekly and they were slightly, sort of promoting Flynn who once was a TV critic for the magazine. The noire mystery is a best seller and is being made into a movie by Reese Witherspoon who loves the book.

I'm irrationally jingoistic about my generation and hometown and Flynn is about my age and lives in Chicago with her lawyer husband. In EW she writes that she thought Jonah Hill and "21 Jump Street" were hilarious and it was one of the funniest movies of recent memory. On her website, she says as a critic her favorite series was "The Wire" and is currently a "Game of Thrones" junkie. So I'm looking forward to checking out her book(s).

"America Is About Getting Paid. Now Where's My Money?" (A movie review in progress)

Felix Salmon has a #slatepitch:

"It took far too long for the unemployment rate to start falling, and it has been falling far too slowly. But “unemployment should be falling faster” is not a crisis."

Spoilers.

Andrew Dominik's Killing Them Softly was really good. You'll like it better if you're a fan of Quentin Tarantino and "The Wire" as I am. The reviews haven't been as good as I thought the movie deserves. Maybe it's the liberals who see it as bashing Obama's hopey-changey talk, but I didn't see it that way. To me, Brad Pitt's character Jackie is agreeing with Chris Haye's thesis* that America's meritocratic system and elite have failed. America is all about getting paid and nothing about solidarity. To use Jared Bernstein's terminology, Obama is saying America's tradition is  WITT (We're In This Together) while Pitt's Jackie asserts that it's YOYO (You're On Your Own) and all about business and getting paid. So I don't see the film as a critique of Obama (whose favorite character on the Wire was Omar) in the tradition of the Thaddeus Stevens ultra types like Duncan Black, Digby, Firedoglake, and Crooked Timber. Obama's speeches appeal to people who want to believe the US isn't a class society and that the elite isn't corrupt, but in passing real-world health care legislation, for example, he was able to engage in successful Lincolnesque politicking and horse-trading and didn't just relay on inspiring rhetoric.

The plot of the movie involves the heist of a mob poker game. A low level gangster (Vincent Curatola's Johnny "The Squirrel" Amato) gets the idea to rob one because the mobster who runs it (Ray Liotta's Markie Trattman) once ripped of his own game and then later bragged about it. For some reason he was given a pass and people now attend his games again because of the understanding that if he did it again he'd be dead and who would be stupid enough to do it again? Trattman doesn't come off as that stupid even if he was stupid enough to once brag about his first heist. Anyway, Amato's idea is to hold up the game since Trattman will get blamed and he wants to do it quickly before anyone else gets the idea. He asks a young ne're-do-well Frankie played by Scott McNairy to find a partner to do the job and then they'll split the proceeds.

The movie works because McNairy is a good actor and Frankie is well written. Pace Felix Salmon, Frankie is in constant crisis and can't get a good job despite the fact he's not that bad a guy. He's not a good guy though, being in and out of jail and ultimately agreeing to do the job. He brings in his only friend/acquaintance an Aussie junkie named Russel played by Ben Mendelsohn. Amato doesn't like the junkie but he's in a rush.

Frankie displays his naivite by repeatedly saying that Amato and Russell haven't been bad to him. And since that's the case in the YOYO world of gangsters he inhabits he feels he needs to stick up for them in turn. So he seems sort of redeemable in his naivite, if only he didn't pull an Omar and rob some mobsters.

Enter the hitman Jackie played by Pitt. He's been hired by the mob to figure out who ripped off the game and then kill them. Just as Trattman once bragged about robbing his own game, Russell the junkie unwisely brags about his successful robbery. So Jackie quickly finds out who he needs to kill. (Why are criminals so often so stupid and indiscreet?)

The mobsters who attend the various games around town believe Trattman did it again. So Jackie advises his mob contact and paymaster (played by Richard Jenkins) to kill Trattman also, just to get the games going again. Jenkins's middle-manager mobster agrees. Trattman knows Jackie, so Jackie brings in another hitman named Mikey played by James Gandolfini to kill him.

Mikey makes a nice contrast to Jackie   Mikey is rude to the "help", i.e. waiters and hookers, and stiffs them on tips. He's a miserable mess after years of being a hitman. Jackie on the other hand makes an effort to be courteous and polite to Felix Salmon's second class citizens. His thuggish driver tries to steal the tip Jackie  left for a waitress which pisses him off. Yet he's a killer. And yes he believes America isn't a family or one society, but rather a business of transactions and YOYO morality. Yet Jackie spares an effort for Salmon's luckless second class Americans. He would rather "kill them softly" at a distance than be sadistically up close and personal about it.

To me it seems like Jackie is upset at the end because he was forced to kill the naive Frankie up close after spending some time with him. He rants at Jenkin's corporate paymaster, the symbol of our YOYO system and its meritocratic elite. Maybe he'll end up miserable like Mikey and he's also upset because he understands that possibilty.

Pace the liberal movie critics, I believe Jackie isn't so much upset at Obama as upset at his situation at the end of the movie: seeing his future self in Mickey; having to kill the naive luckless Frankie up close and not softly, and finally the aggravation of being nickle and dimed by the meritocratic elite via Jenkins. That's the last straw. Obama's pieties just set him off.
----------------------------------------------------
*Throughout the movie, set in the fall of 2008, television and radios play in the background reporting news of the meritocratic elite's epic failure: the financial crisis and credit crunch. The name of the city where the movie takes place is never mentioned, but the film was shot in New Orleans even though George Higgins's book was set in Boston. Filmmaker Dominik also has a radio commentator expressly link the financial crisis with the poor execution of the Iraq war, which is Hayes's thesis: Our elite suck.

It's Official: Austerity Economics Doesn't Work by John Cassidy

(via Thoma)

Why Does a Q&A on the "National Debt Crisis" Appear in the Washington Post? by Dean Baker

(via Krugman)

Raise the Economy's Speed Limit by Jared Bernstein

Dave Brubeck died

Unionizing the Bottom of the Pay Scale by Eduardo Porter

They both work in the fast-food industry — Mr. Carrillo at a McDonald’s in Midtown Manhattan and Mr. Williams at a Wendy’s in Brooklyn. They both earn a little more than $7 an hour. And they both need food stamps to survive. Last Thursday, both did something they had never done before: they went on strike.

...
On a full-time schedule, they could make a little over $18,000 a year, just about enough to keep a family of two parents and one child at the threshold of poverty. But full-time work is hard to come by. With fast-food restaurants increasingly using scheduling software to adjust staffing levels, workers can no longer count on a steady stream of work. Their hours can be cut sharply from one week to the next based on the business outlook or even the weather.

More than two million workers toil in food preparation jobs at limited-service restaurants like McDonald’s, according to government statistics. They are the lowest-paid workers in the country, government figures show, typically earning $8.69 an hour. A study by the Economic Policy Institute, a liberal-leaning research organization, concluded that almost three-quarters of them live in poverty. And they are unlikely to have ever contemplated joining a union.  

...

If unions alone may be powerless, the thinking goes, they can be powerful as part of a broader social movement. “We need workers to come together in formations they haven’t done before,” says Mary Kay Henry, who heads the S.E.I.U. “The tipping point is the entire low-wage economy.” 

The odds that organized labor can tip the scales remain long, however. The S.E.I.U. did organize many janitors, but it did not stem the decline of unions across the economy. Despite the victories, janitors in the United States today earn about 10 percent less on average than they did in 1990, in inflation-adjusted terms. 

Still, if employers can’t be swayed to take on more responsibility for the welfare of their workers, the burden will fall on taxpayers. To put it succinctly, the bottom 40 percent of families earn less than they did almost a quarter of a century ago. If that trend continues, we may need a much bigger government.

Reminds me of the movie "Cloud Atlas." The government is subsidizing these companies' profits with food stamps. I guess it's better than the alternative:  higher unemployment and more poverty.

Review of "The Revolution Was Televised" by Michiko Kakutani

I liked the "Sopranos" but wasn't a hard-core fan. However I was a big fan of the "The Wire," "Deadwood," and "Battlestar Galactica." "The Shield" and "Homeland" are also good. My one or two readers will  know I'm a big fan of "Game of Thrones," "True Blood" and "The Walking Dead."  

bubble, bust, rinse, repeat.

Capital Controls Washing Out the Shampoo Economy by Jared Bernstein

OTE readers know I worry about the advent of the “shampoo economy:” bubble, bust, repeat. 

The last few business cycles both here and in other advanced economies have been characterized by this pattern. To be clear, economies are cyclical…that’s a given. But nowhere is it written—well, outside of Minsky—that the cycles have to be driven by debt driven asset (or investment, as in dot.com) bubbles that are particularly damaging when they inevitably burst. (And Minsky didn’t believe financial busts were inevitable. He believed the bubbles naturally grew out of diminished risk adversity as the business cycle heats up, but could be adequately regulated.)

It's Tight Money That's Causing Low Interest Rates And Lax Fiscal Policy by Yglesias

The IMF and Capital Controls by Krugman

Krugman links to:

Capital Control Freaks by Krugman (Slate, 1999)

26 Economists You Should Be Following On Twitter

(via Thoma)

Economics Lesson for Charles Lane by Dean Baker

Corporate Profit Share of GDP Reaches All-Time High Despite Sharia Socialism by Yglesias

Part of this is an underlying trend away from reliance on the corporate income tax as a source of revenue. But a big part of this is the cyclical weakness of the labor market. In a full employment economy, workers get antsy and start to threaten to quit unless you pay them more. If your business happens to be doing poorly, you probably can't afford to pay them more and either they leave in search of better jobs and you go out of business or else you offer a raise you can't afford and you go out of business. But if your firm is doing well, then you respond to employee antsy-ness by sharing some of the spoils. That's why the profit share of GDP plummeted during the boom economy of the late-nineties.

In today's economy, by contrast, outside of a handful of sectors people are going to have a very difficult time credibly threatening to leave and get a better job elsewhere. So if sales rise, that goes into profits rather than being recycled out as wages. In theory, profits should finance investments and therefore ultimately boost economic activity. But excessively tight money at the Fed has kept the profits/savings/investment link out of equilibrium leaving us with high unemployment, low wages, and high-but-unproductive profits.

AV Club review of the Walking Dead, "Made to Suffer"

NYTimes editorial: The Mortgage Challenge 

AV Club review of Killing Them Softly which has the 2008 financial crisis in the background. One commenter writes:

Cogan's Trade (the novel this movie is based on) is perhaps my favorite crime novel -- only Hammett's Red Harvest comes close. But I'm concerned about anyone adapting that 70s masterpiece into a 2012 state-of-America David Simony thinkpiece. I'll probably just queue up The Friends of Eddie Coyle again and watch that instead.

 I loved the Wire so will probably check it out.

Destructive Responsibility by Krugman

Varieties of Error by Krugman

Why So Serious?

The Walking Dead just set a basic-cable record with being the number one show among the 18-49 demographic. NBC's popular show Revolution sort of has the same theme of society being a step away from systemic collapse, the rule of militias, YOYO morality (You're-On-Your-Own), and the rise of Fascism.

On a ligher note, I also like Castle which is being rerun on basic cable pretty regularly. It stars Nathan Fillion from Firefly (I came late to that show also) and Stana (sounds like Madonna) Katic one of the most beautiful women in the history of the planet.*(!) Katic's parents are Serbian Croatian and she grew up in Canada and Aurora, Illinois. In one re-runned episode her somewhat dour/serious character detective Kate Beckett, lightens up and blurts out "Shut the Front Door!" with a smile. I could feel the emotions of a hopeless schoolboy crush overcoming my defenseless brain. It's one of those things that's simultaneously a rush and depressingly embarrassing. The show has some good writing (like one episode was about zombies) and cameos by cool actors, but what gives it that extra something is the implausibility of there being such a gorgeously beautiful and distractingly attractive police detective in existence. (No wonder mystery thriller writer Richard Castle wanted to work with her.) You have to suspend your disbelief just as you have to do with shows about the existence of zombies. Good to see Fillion land another good show and we wish Katic the best.

----------------------------------------
*That's centuries of beautiful women all over the globe.

Monetary Policy in Challenging Times by Charles Evans (speech in Toronto)

(via Thoma)

First, assume a can-opener by Ryan Avent

The Fed has been pursuing a process of opportunistic disinflation and keeping the labor market weak longer than necessary. It has permitted a large output gap to grind away at the nation's productive capacity and actively destroy human capital. Why? Have to keep the rabble in line.

Doug Henwood on Ezra Klein and Walmart

On the latest episode of the TV show Leverage, "The crew sabotages a mega-store in order to keep it from destroying a small town."

What's Holding the Economy Back? The Collapsed Housing Bubble, End of Story by Dean Baker

BRAD DELONG: THREE DIMENSIONS OF INEQUALITY: GLOBAL, EDUCATIONAL/TECHNOLOGICAL, AND PLUTOCRATIC

We used to have a framework for understanding the time dimension of inequality in the United States: we called it the "Kuznets Curve". The United States starts out as a country that is relatively equal--at least among white guys who speak English. Free land, lack of serfdom, the possibility of moving the west if you don’t like the wages you’re being offered in the east--all of these produce a middle-class society. Then comes 1870 or so, and things shift. The frontier closes. Industrial technologies emerge and they are highly productive and also capital intensive. So we move into a world of plutocrats and merchant princes: people in the cities, either off the farms or from overseas, competing against each other for jobs. And we get the extraordinarily stark widening of American income inequality up until the mid-1920’s or so.

This then calls forth a political reaction. Call it progressivism, call it social democracy, call it--in Europe--socialism. The idea is that the government needs to put its thumbs on the scale, heavily, to create an equal income distribution and a middle class society. Progressivism and its candidates are elected to power in democratic countries in the North Atlantic in the twentieth century--in spite of everything you say about Gramsci and hegemony and the ability of money to speak loudly in politics. Thus from 1925 to 1980 we see substantial reductions in inequality in the United States--the creation of a middle-class society, at first only for white guys and then, gradually, for others.

In 1980 things shift again. Since 1980 we have had an extraordinary explosion of inequality in the United States. This explosion has taken place along two dimensions.

First, we have seen extraordinarily rapid growth between the top twenty percent and the lower eighty percent. The benefits to achieving a college education skyrocket--for reasons that I don’t really have time to go into, and for reasons that are still somewhat uncertain.

Second, we have an even larger explosion of inequality between the top .01 percent, the top 15,000 households, and the rest of the top twenty percent. This second explosion is the most puzzling and remarkable feature of the past generation. 

AV Club reviews The Walking Dead, "When The Dead Come Knocking"

The Fake Skills Shortage by Krugman

That Shortage of Skilled Manufacturing Workers is Really a Shortage of Employers Willing to Pay the Market Wage by Dean Baker

HOW TO GOVERN AMERICA IN 2013 II: MORTGAGES, HOUSING, AND THE RECOVERY by DeLong

The claim that cuts in state and local (and federal!) spending are dragging down the economy are well-founded. The claim that mortgage debt overhang and depressed consumption are not dragging down the economy is not well-founded.

Baker says that right now: 

The claim is the dropoff in consumption due to the debt burden of these homeowners explains the weakness of the recovery.

Some simple arithmetic shows the absurdity of this view. The amount of underwater equity is estimated at between $700 billion (Core Logic) and $1.1 trillion (Zilliow). Suppose that we can disappear this debt through some decree, how much additional consumption would we see? If we assume that these households spend an incredibly large share of this increase in their net wealth, say 15 cents on the dollar, this would imply additional consumption of between $105 billion (Core Logic estimate) and $165 billion a year (Zillow estimate).

However we would have also destroyed the wealth of the mortgage holders. Let's assume that they just spend 2 cents on the dollar of their wealth. This would imply a net boost to demand of $91 billion to $143 billion. While this would be a helpful boost to the economy, equivalent to a government stimulus program of this size, this would hardly be sufficent to make up a shortfall in annual output that the Congressional Budget Office puts at close to $1 trillion.

I'm confused.

Underwater Homeowners Cannot Explain the Weak Recovery by Dean Baker

The claim is the dropoff in consumption due to the debt burden of these homeowners explains the weakness of the recovery.

Some simple arithmetic shows the absurdity of this view. The amount of underwater equity is estimated at between $700 billion (Core Logic) and $1.1 trillion (Zilliow). Suppose that we can disappear this debt through some decree, how much additional consumption would we see? If we assume that these households spend an incredibly large share of this increase in their net wealth, say 15 cents on the dollar, this would imply additional consumption of between $105 billion (Core Logic estimate) and $165 billion a year (Zillow estimate).

However we would have also destroyed the wealth of the mortgage holders. Let's assume that they just spend 2 cents on the dollar of their wealth. This would imply a net boost to demand of $91 billion to $143 billion. While this would be a helpful boost to the economy, equivalent to a government stimulus program of this size, this would hardly be sufficent to make up a shortfall in annual output that the Congressional Budget Office puts at close to $1 trillion.

Calculated Risk:

Next Thursday, the BEA will release the second estimate of Q3 GDP. The consensus is GDP will be revised up to 2.8% annualized growth, from the advance estimate of 2.0%. This would be a pretty sharp upward revision.

Five economic trends to be thankful for by Neil Irwin

To look on the bright side, I'm also grateful that Nate Silver was right.

Interview with Bill McBride of Calculated Risk by Joe Weisenthal

But the state and local gov’t drag is pretty much over, and getting rid of that is really going to help and then of course, housing is a big plus.

...

A lot of it is simple. I read a lot of different economists to try to understand theory, because I’m not an economist – I have an MBA – I kind of understand business, I’ve always been good with numbers, but I read economic theory and I’m glad to read…when we were going into this crisis, I was reading Krugman all the time because it was clear to me that he had a handle on what was going on, from what was going to happen to interest rates….I’d read what he would write and read what other people would write and go, this makes a lot more sense to me. And all that has worked out.

(via DeLong and Krugman)

AV Club reviews the Walking Dead, "Hounded"